Cleveland Utilities is moving forward on a series of budgeted projects and upgrades within the Electric and Water divisions that will add almost $6.4 million to the service provider’s existing debt load.
The use of $6,375,000 in either General Obligation Bonds, notes or loans — which will be reimbursed through utility revenue — to pay for the upcoming projects as they come off the drawing board was approved on a unanimous 5-0 vote during a recent session of the Cleveland Board of Public Utilities.
Cleveland Mayor Tom Rowland, who represents the Cleveland City Council on the utility board, made the motion to forward the bond or loan request to city fathers. On a second by Joe Cate, the governing body gave its full thumbs up to the pair of resolutions. Also supporting it were Chari Buckner, board member; Eddie Cartwright, vice chairman; and Aubrey Ector, chairman.
At last report, CU’s total debt stood at approximately $60 million. Ken Webb, president and CEO who recommended board approval of the bond issuance or loan, said the utility continues to pay off old debt.
“One important item to remember when looking at the debt level for Cleveland Utilities is to consider the old debt that is being repaid on an annual basis,” Webb said. “This naturally helps to offset some of the new debt being issued. Additionally, we monitor debt coverage capabilities of the Electric, Water and Wastewater systems as a part of the annual budget process.”
Cleveland Utilities traditionally evaluates its safe level of debt based on total value of the utility system. The process operates on the same principal as homeowners who are trying to determine the amount of monthly mortgage payments they can afford based on personal income and assets, as well as the total value of the house.
CU’s bond issuance requests will go before a future session of the City Council for final review.
“The debt is issued by the city for the benefit of Cleveland Utilities,” Webb explained. “... The CU resolutions merely make the request to the city for the issuance of the debt. Repayment, however, is from CU revenues and only has the backing of the city.”
Webb added, “The form of the debt has not been determined yet and may indeed be General Obligation Bonds or a loan from a qualifying loan fund. The loan process is more flexible and lends itself to drawing funds on an as-required basis more than the general obligation route. This way interest is only paid on the drawn-down amount.”
The utility board resolutions authorizing the financing package to be forwarded to the City Council include $2,750,000 in bonds or loans for the Water Division and $3,625,000 for the Electric Division.
In the Water Division, the public utility is preparing for the second phase of the 20- and 24-inch water line extension from the Hiwassee Utilities Commission filter plant on the Hiwassee River to CU’s reserve water tank on Eldredge Drive. Cost projection is $2,550,000.
“This is the bulk of the water portion [expense],” Webb said. “This line extension will provide for additional delivery capacity to the growing southern portion of the Cleveland Utilities service territory. When completed, this will also give us a backup supply of water into the system if there were to be an interruption of service on the existing lines from the Cleveland Utilities filter plant or the HUC plant.”
The proposed Water Division issuance also includes $200,000 worth of improvements to Waterville Springs, one of CU’s sources for water.
In the Electric Division, a budgeted project is on the books for an expansion of the Ocoee Substation on the eastern side of CU’s electric service area, at a cost of about $1,625,000. The FY 2014 budget includes several equipment requirements that, when moved forward, will be funded by the bond issue, Webb said.
“In addition, the budget contains the normal plant extensions that occur on an annual basis,” Webb explained. “This includes street and traffic lighting and services to new locations when requested. It also includes for 2014 an amount for pole replacements as a result of the pole inspection program that has been occurring.”
Pole replacement costs are about $92,000.
CU and its contractors coordinate the pole inspection program on an eight- to 10-year cycle “... to assure that failing poles are replaced in the system and that others are [chemically] treated in order to extend their life.”
The Electric Division financing package also includes funds for improvements at the new storage facilities on Freewill Road in the former Colloms building ($192,000) and for the remainder of work to be completed at the newly rebuilt District Substation on 9th Street ($125,000), Webb cited.
Some of the additional line items included in the Electric Division issuance proposal include maintenance building construction, $255,000; telephone system upgrade, $50,000; dispatch center at the Colloms building, $100,000; equipment upgrades and replacement, $590,000; distribution automation project, $141,000; metering upgrades, $55,000; Burlington Substation upgrade, $50,000; and a line extension to the new Spring Branch Industrial Park, $350,000.
“These two [CU board] resolutions are for the amounts that were called for in the 2014 budget, and extend also to projects carrying over into the 2015 year,” the CU president explained. “As projects are modified or delayed, and that does and will occur, the drawdown of the funds will also be adjusted. If projects such as the substation expansion are delayed, this would apply.”
Webb pointed out the board’s recent approval of the bond issue or loan resolutions “... set the process in motion to make the funds available as the capital projects occur.” However, they cannot move forward without the City Council’s blessings.
In the same CU board session that the bond issuance proposals were approved for sending to the City Council, Webb pointed out the utility is evaluating all future projects to determine any that could be delayed in the event that revenue in the Electric and Water divisions continues to remain sluggish.
Over the past few months, CU’s revenue has been negatively impacted by a wet and mild summer that lowered customer need for water and air conditioning. However, a drying pattern in September, October and November stands to increase water sales. Cooler autumn temperatures will also heighten the need to crank up heater thermostats, which will translate into selling more kilowatt-hours.
In past financial updates to the utility board, Webb has frequently pointed to the direct link between the weather and Cleveland Utilities revenue. In general, weather and temperature extremes — in either direction — aid the utility’s income. By contrast, moderate conditions hurt it.